China’s “Underground Grand Canyon,” about an hour’s drive outside the smoggy city of Linyi in the eastern province of Shandong, promises visitors 3 km (2 miles) of grand stalactites, multicolored lights and an exciting luge ride.

Tracing the attraction’s ticket receipts back to investors in the United States proves an even more complex labyrinth to navigate. Following the trail sheds light on the lengths some Chinese businesses have gone to secure overseas listings, which bring the companies funding and prestige back home.

“For entrepreneurs, going public gives them a sense of recognition. For employees, going public gives them a sense of achievement,” Zhang Shanjiu, the chairman of the company, boasted to a tourism publication four years ago as he embarked on the odyssey to list it.

The owners of the Underground Grand Canyon attraction eventually used a dizzying array of holding companies to ultimately list in the United States through a reverse merger that accomplished the feat in 2010.

That practice has come under scrutiny over the past year, as short-sellers including Muddy Waters have targeted some firms listed in the United States and Canada, publishing research reports accusing them of fraud that caused their stock prices to plummet, from which the short-sellers profited.

Some companies that listed through reverse mergers, including Chinese clean-tech firm Rino International, were eventually delisted following investigations prompted by short-sellers’ accusations of accounting flaws.

The company controlling the Underground Grand Canyon in Shandong has not been accused of accounting problems and has not been implicated in any wrongdoing. However, its road to a U.S. listing presents a detailed portrait of the practice of reverse mergers.

LISTING FOR RECOGNITION

The tourist attraction, located off a small road exiting the millet- and corn-growing village of Yishui in the plains of Shandong, is the brainchild of Zhang, the local magnate who in 2004 leased the cave from Linyi officials for nearly 60 years.

With its rock-shaped ticket booths and brightly lit caverns, the cave tourism business attracted more than 670,000 visitors last year, the company says. By comparison, more than 3.6 million visitors visited Yellowstone National Park, the oldest national park in the United States, that year. (Yellowstone is not listed, nor is the U.S. Grand Canyon in Arizona).

Linyi’s Underground Grand Canyon generates revenue from ticket sales, selling luge rides and entrance passes to other attractions in the cave. The firm also keeps stacks of Chinese wine in round earthen jars in the cave, which they sell to visitors.

Zhang made his ambition of listing the caves clear as early as 2007, when he said in an interview with a local tourism website that he wanted to see the company, Shandong Longkong Travel Development Co Ltd, go public as a marker for him and his employees and to make it easier to get bank loans.

“An IPO means going public and it could enormously enhance Longkong’s brand reputation. Media gives far more attention to public companies than private companies. The company could leverage this intangible asset to help it get credit more easily and attract more talent in the future,” Zhang said.

What makes Shandong Longkong Travel and its caverns unique among such companies is its prestigious U.S. listing that came through one of the controversial reverse mergers which allowed it to skirt the IPO process. The listed unit, BTHC XV Inc, is not yet traded on the OTC Bulletin Board.

LABYRINTHS

The link between Longkong and the U.S. stock market is as labyrinthine as the caves themselves.

Longkong is controlled by a shell company in Hong Kong, with little more than a mailing address. That company is owned by another holding company in the British Virgin Islands, which in turn is owned by Long Fortune Valley Tourism Intl Ltd.

Zhang was ultimately helped by Dallas-based Halter Financial Group to obtain a U.S. listing in October 2010 by merging Long Fortune into BTHC XV, a Delaware holding company born in 2003 when Halter bought out a bankrupt nursing home chain.

Long Fortune thus gained access to BTHC’S stock exchange listing and still effectively controls the complex chain of companies that eventually leads back to the caves of Shandong.

It was unclear why the company had so many holding companies between the cave business and its listing, but the journey allowed it to avoid going through the more arduous process of an initial public offering.

Halter Financial was founded by Texas businessman Timothy Halter, who made a name for himself as a guru specializing in Chinese backdoor listings, but who has been distancing himself from the industry in the recent months that the U.S. Securities and Exchange Commission has started taking a closer look at some of the backdoor mergers.

Longkong declined to comment for this article or provide executives to speak with. A Longkong spokesman told Reuters in mid-November that Zhang was in the United States and it was unclear when he was due to return.

Back in the caves, some staff members were unaware of the company’s financial foothold in the United States.

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One guide, who gave only her surname, Qian, led a group of five tourists around the caves one recent November afternoon, describing to them how the garishly lit stalactites looked like scenes from the famous Chinese folk legend “Journey to the West.”

A woman in her group complained to Qian that she could not see what the guide was pointing to.

“If you can imagine it, you can see it,” Qian replied.

Additional reporting by Brian Gow in New York; Editing by Jason Subler and Brian Rhoads